Earnings growth is vital for any organization, regardless of size, because sustained profitability is key to long-term survival. To calculate earnings, examine a company’s revenues over a period and subtract production costs. Earnings strongly influence share prices, with expectations playing a major role.
On that note, ITT Inc. ITT, Signet Jewelers Limited SIG and Urban Outfitters, Inc. URBN are delivering impressive earnings growth and have strong upside potential.
Earnings Estimates & Share Price Movements
We have frequently seen stock prices decline despite earnings growth, or rally after an earnings decline. This largely results from a company’s earnings failing to meet market expectations.
Earnings estimates reflect analysts’ views on factors such as sales growth, product demand, the competitive industry environment, profit margins and cost control. Consequently, earnings estimates are a valuable tool for making investment decisions. They also help analysts evaluate cash flow to determine a firm's fair value.
Thus, investors should look for stocks poised for a big move. Investors should buy stocks with a history of earnings growth that are seeing a rise in quarterly and annual earnings estimates.
Stock Screening Criteria Using Research Wizard
To shortlist stocks that have striking earnings growth and positive estimate revisions, we have added the following parameters:
Zacks Rank less than or equal to 2 (Only Zacks' 'Buys' and 'Strong Buys' are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.)
5-Year Historical EPS Growth (%) greater than X-Industry (stocks with a strong EPS growth history).
% Change EPS F(0)/F(-1) greater than or equal to 5 (companies that saw year-over-year earnings growth of 5% or more in the last reported fiscal)
% Change Q1 Estimates over the last 4 weeks greater than zero (stocks that have seen their current quarter earnings estimates revised higher in the last 4 weeks).
% Change F1 Estimates over the last 1 week greater than zero (stocks that have seen their annual earnings estimates revised higher in the last 1 week).
% Change F1 Estimates over the last 4 weeks greater than zero (stocks that have seen their annual earnings estimates revised higher in the last 4 weeks).
The above criteria narrowed the universe of around 7,839 stocks to only nine. Here are the top three stocks:
ITT
ITT manufactures engineered components and customized technology solutions for transportation, industrial and energy markets. The company’s expected earnings growth rate for the current year is 22.8%. ITT currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Signet Jewelers Limited
Signet Jewelers operates diamond jewelry stores across the United States, Canada, the United Kingdom and Ireland. The company’s expected earnings growth rate for the current year is 21.9%. SIG currently has a Zacks Rank #1.
Urban Outfitters
Urban Outfitters offers lifestyle products and services in the United States and international markets. The company’s expected earnings growth rate for the current year is 13.2%. URBN currently has a Zacks Rank #2.
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ITT Inc. (ITT): Free Stock Analysis Report
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Signet Jewelers Limited (SIG): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).